As a member of the staffing community, I’m sure you’ve heard the same refrain year after year: Employer-sponsored healthcare costs continue to rise. A number of years ago, Howard Schultz, the CEO of Starbucks, admitted to spending more on healthcare than on coffee. Unfortunately, I wasn’t surprised.
But what’s the solution? Traditionally, employers shift costs to their employees, but that’s an unpopular and difficult decision to make. Other organizations absorb costs, but that hurts the bottom line. Either option is a short-term fix. How far can we go? (Issuing employees a box of Band-Aids and bottle of Tylenol?)
A lot of organizations are on autopilot in terms of their health plan life cycle: They get their renewal, flip out on the cost increase, attempt cost mitigation or find a new vendor. Any other expense of this magnitude (~$13,000 per employee per year) would get scrutinized and managed on a daily basis, but healthcare is forgotten about until the following year.
But there is more employers can do to manage healthcare spend. Over the last few years, I’ve observed an increase in healthcare claims paid when someone was NOT eligible. To identify these erroneously paid claims is relatively simple. All you need to do is reconcile:
- Your eligibility and Cobra files, which you send to the insurance carrier and
- Paid claims during a select time period, a report you should be getting on a monthly basis
If you reconcile your bank statements, which are a fraction of the costs, why wouldn’t you do the same with your healthcare spend? Like any project, it’s all about materiality. For companies with high turnover, such as the staffing industry, I’ve found that up to 6% of your healthcare spend is erroneously paid for non-eligible employees and dependents. And depending on the size of your company, that 6% can still be a significant sum. How can this happen? Here are a few common scenarios I’ve encountered:
- Unnoticed Termination. An employee does not report to work. It takes the manager two weeks to report the employee has quit to HR. It takes HR another week to submit the data to the insurance carrier. In the meantime, the employee has been walking around with an “unlimited” insurance card and charging claims for which they are no longer eligible.
- Aged out Dependent. A dependent has aged out of the insurance coverage provided by the parents, but the carrier continues to pay the claims because their internal rules are not appropriately set up.
- Dropped coverage. An employee chose not to continue with medical coverage in the following year but the carrier continued to process claims because they had not erased the prior year’s coverage elections and still had the employee as active.
While in most cases, there is no way to claw back the money for erroneously paid claims, during this process you may uncover internal or vendor-related inefficiencies and loopholes in existing processes, that, when closed, will decrease and over time eliminate ineligible claim payments.